Consider the nature of macroeconomic equilibrium. If, at a particular price level, the total output demanded is greater than that supplied by producers, then
A)the price level will decline toward its equilibrium value.
B)the aggregate supply curve will shift to the left, re- establishing equilibrium.
C)the price level will rise toward its equilibrium value.
D)the aggregate demand curve will shift to the left, re- establishing an equilibrium.
E)the aggregate supply curve will shift to the right, re- establishing an equilibrium.

Question

Quizplus · Accepted Answer

If total output demanded is greater than that supplied by producers, there will be excess demand in the market, leading to upward pressure on prices. As prices increase, producers will be incentivized to increase supply, eventually leading to equilibrium at a higher price level. Thus, the price level will rise toward its equilibrium value.

Consider the Nature of Macroeconomic Equilibrium